JPMorgan's Profit Hurt by Tax Law -- 4th Update

JPMorgan Chase & Co. said Friday that its fourth-quarter profit fell from a year earlier because of one-time charges related to the recently passed tax overhaul, while earnings excluding that impact were roughly flat.

Shares rose about 1% in morning trading.

The biggest U.S. bank by assets reported net income of $4.23 billion, or $1.07 a share. That is down nearly 40% from a year earlier because of a $2.4 billion charge related to the new tax law. Excluding that charge, the bank said, earnings per share were $1.76, up nearly 3% from a year ago, led by solid performance in its consumer bank and commercial bank.

Analysts polled by Thomson Reuters had expected earnings of $1.69 a share. On a reported basis, or under generally accepted accounting principles, earnings per share were expected at $1.16, reflecting the tax-law charges.

The impact from the tax overhaul is "a big significant positive and much of it will fall to our bottom line in 2018 and beyond," Chief Executive James Dimon said on a call with analysts.

Revenue was $24.15 billion, up 3% from the year-earlier period.

JPMorgan's corporate and investment bank had the biggest impact from the tax law. Its trading revenue decreased 34% to $3.37 billion from $4.52 billion a year earlier. A bank spokesman said the bank's adjusted trading revenue would've been down about 17% excluding the impact of the tax law and losses of as much as $273 million related to a single client.

That client is Steinhoff International Holdings NV, which owns U.S. mattress company Mattress Firm Inc., Finance chief Marianne Lake confirmed. Mattress Firm recently obtained a new line of credit as it worked to reduce concerns among suppliers and customers while Steinhoff is dealing with a wide-ranging accounting probe.

JPMorgan reported a $143 million loss on a margin loan related to Steinhoff as well as credit costs of $130 million driven by a reserve build for the same client.

Ms. Lake said the impact was through a syndicated facility JPMorgan participated in and that other bank peers in that facility may have also had credit losses.

Wall Street was expecting a soft trading quarter after executives at a number of banks said it had remained subdued, a source of concern for firms for much of 2017.

The tax charges were largely expected after Ms. Lake said during an early December investor conference -- before the tax bill passed -- that JPMorgan could have a one-time hit of as much as $2 billion in the fourth quarter if the law was enacted in 2017.

Charges related to changes in the value of the bank's deferred tax assets and the need to repatriate profits held overseas. Such charges could reduce the earnings the bank reports, although investors are likely to look to the core operating results since these hits will be one-time in nature.

Mr. Dimon said the bank will take the roughly $3 billion tax benefit next year but cautioned that the tax code still has to be written, so there are uncertainties ahead. He said the bank "may accelerate" some hiring in new bankers and will give more detail at its Investor Day presentation in February.

Ms. Lake said the bank is in the process of putting together a "cohesive and comprehensive set of long-term sustainable actions for our employees, for customers and the community" in response to tax reform that it will share more in the coming weeks. That could include subsidies to low-income borrowers.

Return on equity, a measure of profitability, was 7% in the fourth quarter compared with 11% a year ago.

The boost from still low -- but rising -- interest rates will also likely be a focus for investors, as an increase in rates can help the profitability of big consumer lenders such as JPMorgan.

JPMorgan extended $24.4 billion in mortgages in the quarter, a decrease of 16% from the $29.1 billion the bank extended in the fourth quarter a year ago. Revenue in its mortgage division, one of the largest in the U.S. by volume, was $1.44 billion, down 15% from the $1.69 billion it reported in the year-earlier period.

Overall profit at the corporate and investment bank was $2.32 billion, a 32% decrease from $3.43 billion in the same period last year. In the consumer bank, profits were $2.63 billion compared with $2.36 billion in the fourth quarter a year ago.

JPMorgan's commercial bank earned a record $957 million, a 39% increase from the $687 million it earned in the year-ago quarter, and the bank's asset and wealth management unit reported profits of $654 million compared with $586 million in the fourth quarter of 2016.

JPMorgan set aside $1.35 billion in the fourth quarter to cover loans that could potentially turn bad in the future. That compares with $1.46 billion in the third quarter of 2017 and $896 million in the fourth quarter of 2016. The bank lost $1.22 billion to loan defaults, or 0.57% of its overall portfolio, compared with a 0.58% charge-off rate in the third quarter of 2017.

Costs increased to $14.59 billion from $13.83 billion a year earlier. Ms. Lake said during a December investor presentation that the bank expects the "absolute dollars to continue to grow" based on several factors and that JPMorgan continues to look for opportunities to make "strategically good investments."

The bank had a legal cost benefit of $207 million in the fourth quarter, compared with a benefit of $148 million in the third quarter and $230 million a year earlier.

Write to Emily Glazer at emily.glazer@wsj.com

(END) Dow Jones Newswires

January 12, 2018 10:44 ET (15:44 GMT)